Here are America’s Most Profitable Housing Markets: Cash In!

Here are America’s Most Profitable Housing Markets: Cash In!

Throwing down some hard-earned cash on blackjack or craps at the local casino is enough to make some folks break out into a cold sweat. But when it comes time to buy a home, the ante gets raised to truly nerve-racking levels: They’re making the biggest wager of their lives on what’ll likely be their largest investment. Ever.

Owning a home has long been considered the fastest and most predictable way to build wealth in the United States. And while home sale prices are at an all-time record (at a median of $262,000 as of June) not everyone is walking away with double-digit annual returns.

Picking a place where home prices will continue to surge in the long term is one part science, one part dogged research, and one part blind, dumb luck. Nothing is guaranteed. But if past is prologue, we’re here to help increase your odds of picking a winner: The realtor.com® data team found the markets where home sellers are walking away with the biggest returns.

We’re not talking about short-term flipping here. We’re focusing on those in it for the long haul.

Our analysis finds that the median annual return for home sales was 8% nationally over the last 12 months. Not too shabby, homeowners! But digging into the numbers reveals a disparity. Of the 100 largest metros, the annual return was high as 14%—and as low as 2%. That’s the difference between living retirement on the beach and not retiring at all.

“Owning can be a great way to build up overall net worth,” says Danielle Hale, chief economist for realtor.com. “If you’re looking to transition in a local market [to a bigger home], you have the home equity. If you’re looking to retire and move somewhere else, you have the money to do that.”

Many of the places with the highest returns are the nation’s fastest-growing cities, where highly paid techies are spurring bidding wars. But that isn’t always the case. A few of the places where home sellers walked away with the fattest profits are those that hit rock-bottom in the Great Recession. Savvy buyers who got in on the ground floor have seen their home appreciation soar.

“They walked into the room when everyone was running out,” Jonathan Miller, a national real estate appraiser at Miller Samuel in New York, says of these buyers. “They are now being compensated for their risk.”

To find the country’s most profitable housing markets, we looked at homes that sold over the past 12 months in the 100 largest metropolitan areas. (Metros include the main city and the suburbs surrounding it.)  Then we compared the most recent sale prices to their previous ones, going back as far as 2008. The profit was defined as the difference between the two sales.

Finally, we used those figures to create an average annualized return for each market, and limited our ranking to one metro per state.

Let’s roll the dice!

 

1. Bridgeport, CT (Fairfield County, CT)

Average annualized return: 14%

Median home list price: $789,100

Fairfield County has spent decades esconced as the crown jewel of New York City‘s suburbs, hot spot for wealthy home buyers looking to snag a mansion in luxe, high-status communities like Greenwich, CT, where median home prices are $1.9 million. But this county is more than just leafy, picture-perfect commuter towns; it also stretches into the perennially downtrodden city of Bridgeport. And ever since the financial recovery, properties at both ends of the economic spectrum have been doing very well.

First, the high end: Unlike in nearby Westchester County, NY, home buyers in Fairfield County don’t have to pay a mansion tax. And ever since last year’s tax law changes, which made deductions less generous, the county has been attracting even more interest among big-ticket purchasers.

That increased demand has more and more homeowners cashing in, to get their hands on those profits. It’s common for sellers here to use that windfall to upgrade to an even nicer home, says Leslie McElwreath, a real estate agent at Sotheby’s International Realty’s office in Greenwich.

But it isn’t just mansions driving the price increases. Even higher price appreciation can be found in way less affluent Bridgeport proper, says Miller, the real estate appraiser. The median price there is just $199,000. That’s lured in buyers, and that is now driving prices up.

“If you look at the high end of the county, housing prices haven’t risen as much since the financial crisis,” Miller says. “But areas hit hard by foreclosures in the region are now seeing large gains in property values.”

2. Detroit, MI

Average annualized return: 12% 
Median home list price: $260,000

The Great Recession dealt Detroit a near-knockout punch. The Motor City had struggled for decades with the loss of blue-collar, manufacturing jobs. Then the auto industry went into a tailspin, leading to widespread unemployment and a rash of foreclosures.

Locally based General Motors and Ford received a federal bailout to stay afloat. But in 2013, the city still filed for Chapter 9 bankruptcy. With so many folks looking to leave, the median home values in Detroit fell from $137,200 in March 2008 to $108,800 by March 2012, leaving many owners underwater on their mortgages.

But in recent years, the city has been on the upswing, as more folks move into its revitalized downtown. Younger buyers are finally flocking into the area to purchase condos in converted industrial buildings, like this one-bedroom condo/loft for $299,900.

Homeowners who rode out the bad times are starting to see the rewards. That’s especially true for those who bought at the bottom of the market.

“Detroit fell harder than most markets,” real estate appraiser Miller says. “[But its] rebound has been encouraging.”

3. Seattle, WA

Average annualized return: 12% 
Median home list price: $582,400

Why did so many cities go nuts submitting bids for Amazon’s second global headquarters? Maybe it has something to do with the remarkable transformation the company has wrought in its home city of Seattle. All those lucrative tech jobs have attracted home buyers of means, who’ve sent real estate prices soaring. It’s turning average Joe and Jane homeowners into millionaires.

Competition is fierce. In the last year alone, nearly two-thirds of homes sold in Seattle have received multiple offers, according to a realtor.com analysis. That’s the highest incidence of bidding wars outside California.

Buyers are snapping up condos in downtown Seattle with good views of the skyline or Elliott Bay. But demand is equally as strong for family-friendly, single-family homes in suburbs like Bellevue, WA.

“More than 75% of my buyers are from Microsoft or Amazon,” says Jim Price, an adviser at Engel & Völkers in Seattle. “Lots of millennials here are making six figures and are ready to be first-time home buyers.”

4. San Jose, CA

Average annualized return: 12% 
Median home list price: $1,240,300

The number of deep-pocketed techies and venture capitalists in the heart of Silicon Valley seems to be limitless. Combine that with the meager supply of available homes, and even wee vacant lots can go for over $1 million.

Silicon Valley home buyers from companies like Apple, which is likely to become the world’s first company worth more than $1 trillion, are turning former middle-class neighborhoods into mansion-lined boulevards. Buyers are consistently tearing down the more reasonably sized homes on their lots to put up larger ones.

This happened in Los Altos, CA, where the median home price is now above $6 million.The most expensive home for sale in Los Altos is a 21,000-square-foot mansion priced at $55 million. Those who don’t have quite so much spare cash can consider this two-bedroom 1,500 square-foot condo, currently the cheapest abode on the market, at $1.6 million.

And home sellers looking to unload their property in a hurry don’t have to worry. Not only do 80% of home sales in San Jose result in a bidding war, many of these buyers are willing to pay in all cash.

5. Palm Bay, FL

Average annualized return: 12% 
Median home list price: $270,000

In the 2015 film “The Big Short,” two characters flew to Florida before the housing bubble burst to figure out why so many homeowners weren’t making their mortgage payments. They discovered that folks were purchasing properties they couldn’t afford. True enough, when the housing market collapsed, the state was among the hardest hit.

“Florida was just devastated by the foreclosure crisis, and had to reinvent itself,” real estate appraiser Miller says. “It has been a long recovery period, but people that went against the grain [buying at the market’s bottom] in recent years have done well.”

Like much of costal Florida, Palm Bay has a big demand from baby boomer retirees who are looking to buy homes in the area.

Around a 45-minute drive to Orlando, where the median-priced home is $318,500, Palm Bay attracts home buyers looking for lower price tag. Even a beachfront condo can be found at around $300,000. Just look at this three-bedroom condo in a gated community with a pool and pier, priced at $319,900.

6. Denver, CO

Average annualized return: 11%
Median home list price: $467,600

Colorado has been on a steady growth track for years, helped along by its snazzy craft beer scene and unbeatable scenery. When the state legalized marijuana in 2012, it was just the pungent icing on the cake.

“After that, there’s been just a huge influx of people and money into Denver,” says Ryan Penn, an associate broker at 360dwellings Real Estate in the city. Many of his clients come from the more expensive coastal cities. “I’m representing a couple of buyers who are relocating from Los Angeles, and they’re in contract to sign for a $1.3 million home. In California, they would pay three times more for something the same size.”

Young professionals are enticed by the condos and single-family homes priced between $300,000 to $500,000. But they should expect to write 20 to 25 offers before they win a bidding war, Penn says. Bad news for them—and great news for sellers.

“Even if you bought a home two years ago, you can be sitting on $100,000 of equity,” Penn says. “The biggest demand in homes is for those priced around $500,000.”

7. Providence, RI

Average annualized return: 11%
Median home list price: $350,000

The biggest selling point for the capital of Rhode Island is its reasonably priced homes and its proximity to Boston. The bigger city is just an hour away, but its median home price is 51% higher, at $529,100.

“We have a lot of buyers from Boston and elsewhere looking for more affordable housing,” says Robert Rutley, a local real estate agent at Taylor & Associates. “A lot of them are transplants moving in from around the country for the universities.” Providence is home to Brown University, Johnson & Wales University, and the Rhode Island School of Design, among others.

Just this month, Rutley sold a three-family home in Providence that closed with 17 offers and sold for $30,000 more than the asking price. The hot market is spurred by a growing downtown, which has new hotels and apartment complexes going up.

This is great news for home sellers, many of whom found themselves underwater on their mortgages after the housing crash. During the first quarter of 2018, 6.8% of homes in Rhode Island were under water, compared to more than 10% just two years earlier, according to CoreLogic, a real estate data firm. Over the last year alone, the average Rhode Island homeowner added $18,600 in home equity.

8. Boston, MA

Average annualized return: 10% 
Median home list price: $529,100

Boston has several historic districts where the stately brownstones are star attractions. But because the city limits construction there and doesn’t allow high-rises to go up in many parts of town, there is a limited supply of homes for sale. And that’s pushing home prices up, up, and away.

“The people buying [in these areas] want the historic Boston experience,” says Collin Bray, a real estate agent at Century 21 Cityside in Boston. “They pay big money for high ceilings and deep fireplaces.”

A rebounding financial sector, which employs many residents, has pushed wages higher. But money isn’t always enough to snag the most desirable homes for sale in this skintight market.

“I’ve heard of buyers showing up at sellers’ doorsteps, ringing the doorbell, and introducing themselves, so hopefully the seller will remember them,” Bray says.

9. Nashville, TN

Average annualized return: 10% 
Median home list price: $368,000

Folks are used to paying sky-high home prices in places like New York and San Francisco. But it’s new territory for for native Nashvillians, where prices have steadily been climbing for the last few years.

A surplus of good jobs has brought home buyers here. And the coolness factor of living in Music City has made it catnip for younger buyers.

Older homeowners who purchased their homes for around $30,000 decades ago are now selling their abodes for a mint and then moving into multifamily homes with their children or into retirement communities, says local real estate agent Brian Copeland of Doorbell Real Estate.

“They can’t pass up on how much profit they’d make if they sold,” Copeland says.

10. Portland, OR

Average annualized return: 10% 
Median home list price: $477,500

Portland has been sizzling for some time now—and it’s more than just the parody-worthy hipster scene that’s responsible. As it turns out, the housing market here is uniquely well situated; many new residents are refugees fleeing expensive West Coast markets like Seattle and San Francisco.

“It’s really the last affordable major city on the West Coast,” says local real estate broker Darcie Alexander of PDX Green Team. “We have the great coffee, a variety of restaurants, and tons of art and music, but at a fraction of the price.”

Between 2010 to 2017, the population of the metro area grew 11%, to about 647,805 in the city. That increase, and the climb out of the recession, have led to a jump of 56% in home prices during the same time period. That’s been a boon for sellers, who haven’t had a hard time unloading their homes. (Single-family houses like this three-bedroom, two-bath ranch priced at $334,900 are particularly popular.)

So what are sellers doing with those big profits?

“[They’re] wanting to buy something bigger in a higher price range, but they’re staying in Portland,” Alexander says. “Most people are either reinvesting it into the real estate market or they’re paying off debt.”

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Sources: realtor.com and CoreLogic

Allison Underhill contributed to this report.

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